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10 Tips for Income Tax Planning for Your Small Business

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Small businesses can have a painless experience when they file their yearly or quarterly taxes if they follow these ten tips.

1. Keep excellent financial records on a daily basis.

Use a good computerized accounting program to keep track of all the cash you take in and all the cash you pay out. If you do this from the first day you open your business, life will be easier at income tax time.

2. Keep all invoices and receipts arising from business operations.

Your income has to be claimed for tax purposes, but you can write your business expenses off against that income to lower the amount of taxes you owe. If in doubt about whether to keep a receipt, err on the side of caution; keep it!

3. Match your invoices and receipts to your computerized accounting program.

Each invoice and receipt should be backed up by an entry in your computerized accounting program.

4. Keep track of how much you use your car for business purposes.

If you use your personal vehicle for business purposes, you can deduct the mileage that you accumulate for the business portion of your travel. Keep a small travel diary in your vehicle and write down your odometer readings each time you travel for business purposes.

5. Keep in mind that you can write off new business assets within limits.

If you buy new business assets, such as office equipment, you may be able to write off the cost of the assets in the year that you buy them based on certain IRS-defined limits. If the assets cost more than the established limits, then you can depreciate them over a certain number of years.

6. Deduct the interest on debt from a business loan.

If you have taken out a loan to start up or operate your business, the interest on that loan is tax-deductible.

7. Check out any business tax credits that might be available to you.

Business tax credits are more valuable to you as a business owner than deductions. An example is the Work Opportunity Credit, which provides you with an incentive for hiring individuals from groups with high unemployment rates. There are many other business tax credits you may take advantage of.

8. Keep all your tax documents for at least seven years.

Keep all the tax documents that you file for your business. Furthermore, keep all supporting documentation, such as business receipts and vehicle mileage documents, with the tax documents for the year in which they occurred. Seven years is only a guideline; many small business owners keep tax documents indefinitely.

9. Become familiar with the Internal Revenue Service's website for small businesses

The Internal Revenue Service has a particularly good website for small businesses. You can gather information and download forms that will be helpful to you.

10. Hire a good tax accountant.

The best thing you can do for yourself and your small business is to hire a good tax accountant to help with your taxes. Follow these tips and your trips to your accountant will be much more productive!
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